Revenue-Based Financing for Our Crumbling Infrastructure System

January 18, 2013

The Reason Foundation recently released a policy brief rethinking how America pays for and manages its transportation infrastructure. Current investments in infrastructure construction and repair are funded through capital investments from operating cash flows. With across-the-board funding cuts looming in the midst of the ongoing fiscal crisis, a report by the National Commission on Fiscal Responsibility and Reform has suggested that each transportation mode should be self-supporting through direct user fees, says Robert Poole, the Searle Freedom Trust Transportation Fellow and director of transportation policy at the Reason Foundation.

The federal government supplies grants to states for highway and transit programs through the Highway Trust Fund, which is funded by several federal user taxes (primarily fuel taxes).

Airport and air traffic control system costs are defrayed by air travelers who pay taxes on airline tickets and aircraft operators who pay fuel taxes to the Aviation Trust Fund.

Port and harbor maintenance is supported by cargo ships paying a harbor maintenance tax to the Harbor Maintenance Trust Fund.

Inland waterways, locks and dams are supported through a diesel tax paid into the Inland Waterways Trust Fund by users of the waterway system.

Poole suggests implementing highway user tax revenues to restore the depleted Highway Trust Fund. He also recommends removing large and medium hub airports from the federal airport grants program, allowing them to support themselves via passenger fees, and making all inland waterway systems totally user-funded.

Another funding option, federal grants, brings stipulations that raise the costs of building projects substantially, like paying prevailing local wages.

Many grant programs encourage capital-intensive projects that increase new capacity instead of investing in appropriate maintenance.

Indeed, the current system of infrastructure funds establishes a grant system that encourages state and local infrastructure owners to fund most capital projects out of annual cash flow instead of financing them. By financing major infrastructure projects, the economic benefits of that infrastructure occur immediately instead of waiting until the total cost of the project is at hand.

Instead of increasing direct-user fees, new infrastructure projects should be financed and their costs spread out over time. This will support both the economic recovery and job growth.